Published: 19/04/2022 By ECAPLast week’s inflation report for March out of the UK piled further pressure on the Bank of England to try and restore its credibility. Upward surprises across the key subindices brought inflation to a fresh 30-year high, with a near certainty that next month's print will be even higher. Markets are expecting the Bank of England to be forced to retreat on its dovish rhetoric, and sterling ended up at the top of G10 weekly rankings as a result. This week we have key speeches at the IMF panel by MPC members Mann and Bailey, both on Thursday. Any hawkish overtones should be positive for sterling, as should be the continued expansionary strength we should see in the PMIs of business activity on Friday.
The ECB passed on the chance to convince markets that it is taking inflation seriously at its April meeting last week. The communications were largely a reiteration of those in the previous meeting, in spite of the turn for the worse in all inflationary gauges since then. However, there seems to be significant dissent within the council, as "ECB sources" leaked that a July hike in rates is still very much a possibility. In addition to this week’s PMI data, focus will be on the second round of the French election this weekend. We expect Macron to win reelection as all polls predict, but also think that this is largely priced in by markets and will have little impact on the euro.